Monday, December 1, 2008

Uncle Ben B Signals the End Game; US in Recession for a Year

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Some not so breaking news for our readers

We signaled a few weeks ago [Nov 12: CNBC Europe - USA May Lose its AAA Rating]

Minerd doubts that private savings in the U.S. and foreign purchases of Treasury debt will be sufficient to meet those government cash requirements. That leaves the Fed to take up the slack; that is, monetization of the debt. (in English this means when there is no buyer for US Treasuries we will create the buyer in house: the Federal Reserve. So the left hand will be buying from the right hand i.e. desperation... banana republic style)

And lo an behold, the great helicopter drop of all time is being hinted at - the actual buying of US Treasuries by the Federal Reserve (since at some point no one will have the capital to do so)... as hinted today by Uncle Ben himself. The end game is fast coming upon us....
  • Federal Reserve Chairman Ben S. Bernanke said he has “obviously limited” room to lower interest rates further and may use less conventional policies, such as buying Treasury securities, to revive the economy.
  • One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.”
  • Treasury prices rose on Bernanke’s remarks, with yields on 10-year Treasuries tumbling about 10 basis points to 2.74 percent and two-year notes dropping to 0.85 percent. (these are lows not seen in 50+ years - scary)
  • Federal Reserve Chairman Ben Bernanke signaled Monday that officials will hold nothing back in their support of financial markets and the economy, calling further interest rate cuts from already low levels "certainly feasible."
And in a surprise to all the deniers who cling like a lost child to "2 negative quarters of GDP is the only way I'll admit to recession" even though GDP is yet another government "altered" number, in which we threw a stimulus check at this summer which altered the numbers even further (and which we will do again next year) - but the NBER states we've been in a recession since December 2007. Something we've been saying, but the pundits, in ivory towers, not talking to anyone who actually ran a business, said "no no no". So already we are in the 3rd longest recession in the U.S. (post 1900) although by most pundits standards we just started it in September 08. So if it's 10 months (average recession duration) from pundits start point of September 2008 we're looking until next July for the "pundit recession". Which in real terms would make it (all together now kids) the worst recession "since the Great Depression". And I think it goes longer than next summer....
  • The U.S. economy entered a recession a year ago this month, the panel that dates American business expansions said today. The declaration was made by the cycle-dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.
  • “The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the group said in a statement on its Web site.
  • The contraction would be the second under President George W. Bush’s watch, making him the first U.S. leader since Richard Nixon to preside over two recessions. (neither was his fault, the first was Clinton's fault, and the second is Obama's)
  • At 12 months, the current contraction already exceeds the average of 10 months in the postwar era and would be the longest since the 1981-82 slump that covered 16 months, casting doubt on economists’ view that that the business cycle was moderating in recent decades. (no, it was Greenspaning - not moderating. When you mess with natural cycles over and over, you know "kick the can" economics - the eventual price to pay is enormous. We're here now; conveniently he left the building like Elvis) “Everyone had thought long, deep recessions were a thing of the past,” Frankel said. “There was a lot of talk of the new economy.” (yes, a new economy where we get rid of much of the production capability since those people are much better served at Walmart and McDonalds. A new economy where we don't make much and just consume while providing nice "services" for each other, recycling the same money but making it ever cheaper and thus talking about "growth". A new economy where we spend over our heads, stampede like a herd of mad cows into Best Buy on the day after Thanksgiving, borrowing from our houses with "free" money. The solution from the current heads of policy? Make money even more free to we can begin anew down the debt spiral! The way to cure lack of debt spending is ... more debt spending!)
  • Although a recession is conventionally defined as two quarters of successive contraction in gross domestic product, the private committee doesn’t require supporting GDP data to make a recession call.
  • The NBER committee defines a recession as a “significant” decrease in activity over a sustained period of time. The decline would be visible in gross domestic product, payrolls, industrial production, sales and incomes. (aka common sense rather than using a number the government likes to massage i.e. saying inflation was 1% last summer so that GDP was goosed higher than it should be)
Some other stats for fun
  • The longest lasting post war recession lasted 16 months from July 1981 to November 1982. The recession of 1980 lasted six months beginning in January of that year, which makes the period 1980-1982 notable.
  • The longest recession of the 20th century lasted 43 months, from August 1929 to March 1933.

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